Goodwill and Intangibles

12 Months Ended

Dec. 25, 2016

(4) Goodwill and Intangibles

Goodwill

Changes in the carrying amount of goodwill, by operating segment, for the years ended December 25, 2016 and December 27, 2015 are as follows:

					Entertainment
	U.S. and Canada		International		and Licensing		Total
2016
Balance at December 27, 2015	$	296,978		170,110		125,607		592,695
Acquired during the period		—		—		11,821		11,821
Impairment during the period		—		—		(32,858)		(32,858)
Foreign exchange translation		—		(277)		(826)		(1,103)
Balance at December 25, 2016	$	296,978		169,833		103,744		570,555

2015
Balance at December 28, 2014	$	296,978		170,853		125,607		593,438
Foreign exchange translation		—		(743)		—		(743)
Balance at December 27, 2015	$	296,978		170,110		125,607		592,695

A portion of the Company's goodwill and other intangible assets reside in the Corporate segment of the business. For purposes of the goodwill impairment testing, these assets are allocated to the reporting units within the Company's operating segments.

The Company performs an annual impairment test on goodwill. This annual impairment test is performed in the fourth quarter of the Company's fiscal year. In addition, if an event occurs or circumstances change that indicate that the carrying value may not be recoverable, the Company will perform an interim impairment test at that time.

During the fourth quarter of 2016 in conjunction with the Company’s annual review for impairment we completed step one of the annual goodwill impairment test for the Backflip reporting unit. Prior to the fourth quarter of 2016, there were no triggering events that would have required the Company to test for impairment. The Company’s evaluation of the current year performance of the Backflip reporting unit was dependent in large part on the performance of launches that took place during the fourth quarter. Additionally, during the fourth quarter, the Company revised its expectations regarding the timing of future launches. The first step of the goodwill impairment analysis involved comparing the Backflip carrying value to its estimated fair value, which was calculated based on the Income Approach. Discounted cash flows serve as the primary basis for the Income Approach. The Company utilized forecasted cash flows for the Backflip reporting unit that included assumptions including but not limited to: expected revenues to be realized based on planned future mobile game releases; expected EBITDA margins derived in part based on expected future royalty costs, advertising and marketing costs, development costs, and overhead costs; and expected future tax rates. The cash flows beyond the forecast period were estimated using a terminal value growth rate of 3%. To calculate the fair value of the future cash flows under the Income Approach, a discount rate of 14% was utilized, representing the reporting unit’s estimated weighted-average cost of capital. Based on the results of the step one impairment test the Company determined that the fair value of the Backflip reporting unit was below its carrying value, and therefore, impairment was indicated. Because indicators of impairment existed, the Company commenced the second step of the goodwill impairment analysis to determine the implied fair value of goodwill for the Backflip reporting unit, which was determined in the same manner utilized to estimate the amount of goodwill recognized in a business combination.

As part of the second step of the goodwill impairment analysis, the Company assigned the fair value of the Backflip reporting unit, as calculated under the first step of the goodwill impairment analysis, to all the assets and liabilities, including identifiable intangibles assets, of that reporting unit. The implied fair value of goodwill was measured as the excess of the fair value of the Backflip reporting unit over the amounts assigned to its assets and liabilities. Based on this assessment, the Company recorded an impairment charge of $32,858. A further deterioration in the forecast or assumptions discussed above could result in an additional impairment charge. At December 25, 2016 there is $86,253 of remaining goodwill related to the Backflip reporting unit.

Based on its qualitative assessment of goodwill for all reporting units with the exception of Backflip, the Company concluded there was no other impairment of goodwill during 2016. In addition, the Company completed its annual impairment tests of goodwill in the fourth quarters of 2015 and 2014 and concluded that there was no impairment of its goodwill.

On July 13, 2016, the Company acquired Boulder Media Limited (“Boulder”), an animation studio based in Dublin, Ireland. The consideration included an initial cash payment of approximately $13,177 and provisions for future earnout payments. Based on the Company’s analysis, goodwill in the amount of $11,821 million was recorded and is reflected in the Entertainment and Licensing segment.

Other Intangibles, Net

A summary of the Company's other intangibles, net at December 25, 2016 and December 27, 2015:

	2016		2015
Acquired product rights	$	789,689		789,781
Licensed rights of entertainment properties		256,555		256,555
Accumulated amortization		(876,033)		(841,267)
Amortizable intangible assets		170,211		205,069
Product rights with indefinite lives		75,738		75,738
Total other intangibles, net	$	245,949		280,807

Certain intangible assets relating to rights obtained in the Company's acquisition of Milton Bradley in 1984 and Tonka in 1991 are not amortized. These rights were determined to have indefinite lives and are included as product rights with indefinite lives in the table above. The Company tests these assets for impairment on an annual basis in the fourth quarter of each year or when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. The Company completed its annual impairment tests of indefinite-lived intangible assets in the fourth quarter of 2016, 2015, and 2014 concluding that there was no impairment of these assets. The Company's other intangible assets are amortized over their remaining useful lives, and accumulated amortization of these other intangibles is reflected in other intangibles, net in the accompanying consolidated balance sheets.

Intangible assets, other than those with indefinite lives, are reviewed for indications of impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company will continue to incur amortization expense related to the use of acquired and licensed rights to produce various products. A portion of the amortization of these product rights will fluctuate depending on brand activation, related revenues during an annual period and future expectations, as well as rights reaching the end of their useful lives. The Company currently estimates amortization expense related to the above intangible assets for the next five years to be approximately:

2017	$	29,000
2018		17,000
2019		36,000
2020		40,000
2021		18,000

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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